Thursday, October 23, 2008

Lessons I learned from Jason Calacanis

Yesterday. Mahalo CEO and serial entrepreneur Jason Calacanis sent a very moving and informative post down his mailing list breaking the news publicly that his company was going to have to do layoff's. Firing people you care about and who've been through the battle with you is tough. It's made even tougher when you're a high profile company with a cheerleader at the helm who's used to focusing on what is so right with the company and the industry. What's really different about this situation though, is how Calacanis has chosen to be so public about the layoff's and turn it into a lesson that startup founders around the world can learn from.

In the email, Calacanis discusses the decision making process, the emotions behind laying off 10% of your workforce, and how he chose to handle it in a unique, unemotional, but still compassionate way. His words are written in a raw, honest voice that I believe expose the tough emotions he's dealing with at Mahalo.

Because of copyright restrictions, I'm not going to reprint the email here. But I'd like to share with you a few of the lessons taught in it. I think they will benefit anyone who's wrestling with these hard issues in their business:

1. Analyze where you're at and set a goal. Pull out your P&L statement and do a line by line audit. Toss out everything that isn't a necessity. Reduce your capital burn rate. The more you save, the less human capital you have to cut.

It's also important that you have a goal. Know where you are and where you need to go. From there, it's a matter of finding the right road to get you there which makes the entire process much easier.

2. Rethink your strategy. Maybe the way you've operated for the last year worked when you could burn through $50,000 a month. But, when you have to conserve on every dollar you spend, question everything. Change the way you do things, look at business processes, ask your staff to help you find ways to cut costs. Let nothing be sacred. Everything is up for grabs.

3. Focus on revenue. Most companies spend a lot of time doing non revenue generating things. Stop. Look at your procedures and cut everything that isn't positively effecting your bottom line. Survival is the goal here. You can live without the luxuries for a while if it ensures your company will survive.

Don't forget to look for new ways to bring in new revenue while you're cutting out things that flat line it. Think outside the box and look at non-traditional things that will have fast and long term effects on your growth or stabilization.

Unfortunately, there are times when the above 4 methods simply won't cut it and you have to lay people off. Calacanis offers some nuggets of wisdom for this too:

1. Do it right away and all at once. Don't bring people one by one into your office and try to explain everything. It gets to emotional and messy, throws the other employees into a panic, and creates a lot of fear. Instead, gather everyone together and tell them all at once. This will be a very emotional time so be sensitive of that. Be prepared for emotional reactions but keep it professional.

2. Don't sugar coat the situation. You're firing people. You can't make it better unless you don't fire them. Be direct and honest. Lay it on the line.

3. Don't cut salaries in an effort to save people. It demoralizes employees and generally fosters fear because everyone knows it's a last ditch effort that probably won't work anyway. Plus, in a way, I always look at salary cuts as a way of telling people 'you're just not worth what we're paying you'. It's demoralizing, degrading, and will make them resent you even more than layoff's will.

4. Be generous. Yes, the company is in trouble and you're getting rid of staff. But that doesn't mean you have to be heartless about it. These people have poured their entire lives into your company. Treat them well. Give them good references, offer decent severance packages, make sure they feel like they were valued. Believe it or not, you can fire someone and still have a good relationship with them. It's all about how you handle it.

The big message I got from Calacanis' email was that you need to focus on your company and how it can add or create future value. Not making the tough decisions now and letting go of a few people will only hurt everyone you employ in the future and then you'll be responsible for hurting a lot more. You have a responsibility to your staff and your business to make sure you will be there in the future. Sometimes, that means thinning the herd out for the short term.

All-in-all, I think Mahalo did the right thing and Calacanis handled the situation incredibly well. It forced me to take a long, hard, look at my own business practices and evaluate what we need to do to make sure we'll be around when the market settles.

Jason Calacanis is a smart guy. This email also shows that he's a pretty awesome person as well.

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